Student loan rates cuts: who could benefit?

NEW YORK (CNNMoney.com) -- Paying for college may get a little easier. Today congress voted to cut interest rates on the government's largest loan program. In today's top tips we'll tell you what you need to know.

1: Who will benefit

Since the subsidized Stafford loan is need-based, low and middle income students are likely to qualify. It's estimated that this will impact 5.5 million students. "Seventy-five percent of borrowers are from families making $67,000 or less," says Luke Swarthout of the US Public Interest Research Group. It's also important to note, this bill is specifically for undergraduates.

2: How it will work

If this bill is passed by both the House and the Senate, interest rates on the subsidized Stafford will be cut from 6.8% to 3.4% beginning this July. These rate cuts will be phased in over the course of five years. So, this year, the interest rate will be cut from 6.8 percent to 6.12 percent.

In 2008 the rate will go from 6.12 to 5.44%. These small cuts will continue until 2011 when the rate will go from 4.08 percent to 3.4%. So borrowers who take out subsidized Stafford loans starting in July 2011 will benefit from these cuts the most.

3: What it means to your wallet

Assuming a student has $10,000 in Subsidized Stafford loans on 10 year repayment schedule, a freshman this fall will save an average of $1092 over the life of the loan. And as you can see the difference in monthly payments from 6.8% rate to a 3.4% rate is about $17.00.

4: Watch the fine print

What's not being talked about is how long the 3.4% interest rate will be in effect. And...sadly, it's set to expire on Jan. 1 2012. That means students will have that low 3.4% interest rate...for about 6 months (From July to January). If there is no extension of the cuts, the rate will revert back to 6.8%.

5: Watch the Developments

Once this bill is voted on, it will make its way to the Senate where it may be part of a broader bill introduced by Senator Kennedy later this month. To follow the status of this bill, just type the bill number which is HR 05 into the library of congress website. That's Thomas.loc.gov. Here you'll be able to read the legislation and track it's progress.

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